694.0031/11–848: Telegram

General of the Army Douglas Mae Arthur to the Secretary of State 1

confidential
priority

CX 65218. Subject is sterling area trade arrangement. This radio in two parts.

Part 1. Present tentative scheduled date for finalization of sterling area trade arrangement negotiated during Sterling Area Trade Conference July–August 19482 is set for 1000 hours, Tokyo time, 9 November 1948. Trade arrangement will be signed by 5 sterling area representatives on behalf of the following: United Kingdom and Colonies, Australia, India, New Zealand and South Africa. Draft copies of trade arrangement were forwarded to Departments of Army, State and Commerce on conclusion of trade conference.

Part 2. Joint SCAP–UK press release now in course of clearance at capitals of sterling area governments concerned is scheduled for simultaneous release in Tokyo, London, Canberra, Delhi, Wellington and Pretoria. Draft press release follows: “sterling area trade arrangement.”

The representatives of the Supreme Commander for the Allied Powers acting in respect of occupied Japan and the representatives of five British Commonwealth countries, today formally concluded an [Page 1042] arrangement by which trade to the minimum value of sterling 55,000,000 will be done between these countries and occupied Japan from July 1, 1948 to June 30, 1949, representing an increase of Japan’s trade with the whole “sterling area” of over three and one-half times. The British Commonwealth participants are Australia, India, New Zealand and South Africa, as well as the United Kingdom and its Colonies, except Hong Kong. This is the first time that such a large and representative part of the “sterling area”, including four self-governing countries, have pooled their resources for the purpose of together forming one of the two parties to an arrangement of this kind. The arrangement, which embraces trade through both government and private channels, aims at maintaining an approximate balance of exports and imports by the two parties in order to avoid dollar expenditure on either side. More than half Japan’s exports under the arrangement will consist of cotton textiles, while she will import a wide range of essential raw materials.

The arrangement provides that all trade between the two parties shall be conducted on a sterling basis in accordance with the terms and provisions of the over-all sterling payments arrangement which is in force between the Supreme Commander and the whole of the “sterling area”, with the exception of Hong Kong, which, in view of its special position as an entrepôt continues to have its own payments and trading arrangements with Japan. The trade plan which forms the basis of the arrangement is not restrictive, but is intended to represent, in the light of the best information, available to the two parties, the volume of trade which may be expected to flow between them during the period covered, and the character it is most likely to assume.

It is emphasized that the plan is not intended to constitute a commitment, binding on either party, but rather to represent a reasonable computation made in good faith of the volume of sales and purchases likely to result from the desire of the two parties to develop trade between them to the highest practicable level. Both parties undertake to facilitate in every way the sale and purchase of goods and services as specified in the plan.

The arrangement provides for frequent consultation between the parties; for the establishment, in common accord, of special machinery to ensure that accurate and up-to-date information shall be available in respect of the operation of the arrangement and to ensure the implementation of the trade plan generally; and for a general review not later than January 15, 1949, with a view to paving the way for a fresh plan in the next trading year. A further provision is that each party shall do everything feasible to ensure compliance with the export-import controls, exchange controls and such other controls that relate to international trade as may be in force and effect from time to time in the areas under the control of the other.

Great importance is attached by both parties to maintaining trade between occupied Japan and the “sterling area” as a whole in approximate balance in order to avoid any loss of dollars to either side. Under the terms of the over-all sterling payments arrangement, the supreme commander has the right to convert surplus sterling balances into dollars, although normally such conversion would not be required to the extent necessary to meet estimated near term commitments.

[Page 1043]

An obvious advantage of the trade arrangement is that within the scope of an estimated over-all balance, it affords greater elasticity for Japan’s “sterling area” trade, in that it is a multilateral arrangement between occupied Japan on the one hand, and on the other the United Kingdom and the whole Colonial Empire with the exception of Hong Kong, and four other British Commonwealth countries, all of which are important suppliers of Japan’s needs in raw materials, as well as traditional markets for her products. Furthermore, the existence of a plan to work toward enables the supreme commander acting in respect of occupied Japan to map out trade and production programmes with a far greater degree of confidence and accuracy than would otherwise be the case. From the point of view of the “sterling area” participants, advantage similarly lies in the fact that, although in framing the plan, “hard currency” considerations have had to be applied, within the scope of the plan, these considerations are no longer paramount and, other things being equal, licensing of imports can proceed smoothly within the prescribed limits.

It is part of the understanding between the parties, that the undertaking into which each has entered in making the trade arrangement to expend on imports from the other party the full amount of the proceeds from exports to that party, in no way binds either to import from the other goods of a less essential nature than those included in the plan.

The arrangement leaves the way open for other countries in the “sterling area” to accede, subject to the approval of both parties. Alternatively, it is open to individual “sterling area” countries to negotiate bilateral arrangements with occupied Japan, as in the case of the dominion of Pakistan. Meanwhile, of course, sterling trade can continue between occupied Japan and other countries in the “sterling area” (e.g. Burma, Ceylon, Iraq) under the provisions of the over-all sterling payments arrangement on a case-by-case basis, and although the trade plan makes no attempt to estimate the gross volume of trade likely to flow between those other countries and occupied Japan outside its scope, a small “reserve pool” of purchasing power is set aside, if necessary, can be drawn upon to cover the net requirements of the other “sterling area” countries.

The main goods to be exported by occupied Japan under the arrangement are cotton textiles, which account for a minimum of over sterling 16,000,000 of the total minimum estimated Japanese sales of some sterling 27 and one-half million; industrial machinery and parts; raw silk; rolling stock; caustic soda and other chemicals; rayon, wool and silk manufactures; paper and paper products and bunker coal. The “sterling area” participants will furnish a wide range of raw materials and other goods and services to an approximate value of sterling 23,000,000, including raw wool; iron ore; salt; raw cotton; cereals; petroleum; rubber; tin; jute; oil seeds; wool waste; coal; hides and skins; manganese; gums; resins and shipping. The balance of approximately sterling four and one-half million will be offset against a balance of goods already delivered to occupied Japan during the previous period on open account under governmental trading arrangements.

The negotiations for the trade arrangement were carried on in Tokyo during July and the first part of August between representatives [Page 1044] of the Supreme Commander for the Allied Powers and of the participating British Commonwealth countries in an atmosphere of cordial good-will and frankness. The increase in the utilizability of sterling over a substantial proportion of occupied Japan’s foreign trade which should ensue from the successful implementation of this arrangement and of its expected extension over succeeding years should go far towards increasing the volume of trade between the “sterling area” and occupied Japan. Its successful conclusion marks a big step forward in the reopening and development of trade between occupied Japan and the “sterling area” and should make a valuable contribution not only towards the stabilizing of the Japanese economy, but also towards the prosperity and well being of the whole Far Eastern and South Eastern Asian areas.

[MacArthur]
  1. Relayed the same day to London.
  2. See despatch 539, August 19, p. 995.